Investment Strategy generally

stylised image of two men and two women meeting around a table to discuss their SMSF investment strategy

The development of an SMSF Investment Strategy is as important a process to the members of an SMSF as is an investment strategy to any investor. Whether in relation to superannuation or non-superannuation investing, investors use this process to consider all of the elements that influence successful investing.  In the case of the SMSF however, the significance takes on an added dimension – the legal obligation of the trustees to their members to maintain the compliant status of the Fund.

Typically a range of investment assets will be considered when formulating an investment strategy: these will include a range of cash, equity (share), property and ‘alternative’ investments  – both locally and overseas. A well-structured investment strategy will give the investor a wide choice of assets to invest in; and will usually guide with ranges of allocation to each asset type.  (Note: Diversification is an important consideration when preparing the investment recommendations in any financial plan.)

When considering the allocation ranges of the asset classes to invest in, matters such as the investor’s financial position, goals and objectives, risk aversion profile and timeframe will be brought to account.

SMSF Investment Strategies in particular

An investment strategy is more useful when documented as a detailed financial plan (see section below on documenting the SMSF investment strategy). In the case of an SMSF the Trustees are charged with an obligation to base the Fund’s Investment Strategy on the current and future financial needs of each Member of the Fund – as well as their need for insurance protection. This is an obligation to individual members, but which may be satisfied utilising a common strategy for all.

Trustees have a duty under the SIS Act to make, document and implement decisions on how SMSF assets are invested. They are also obliged to carefully monitor the performance of the investments. This duty is satisfied when the trustees formulate and implement an investment strategy that is unique to their Fund – including minuting decisions about the investment strategy review and/ or implementation.

When preparing the SMSF investment Strategy document, the Trustees need to bring to account the following elements:

  • the risk and likely return from investments (seeking to maximise member returns)
  • diversification (investing in a range of assets and asset classes)
  • the liquidity of the fund’s assets (how easily appropriately determined amounts can be converted to cash to meet fund expenses in a timely basis)
  • the members’ needs and circumstances (for example, their age and retirement needs), including the fund’s ability to pay benefits (when members retire) and other costs it incurs – and
  • whether the trustees of the fund should hold insurance cover for one or more members of the fund.

Documenting an SMSF Investment Strategy

For a range of practical reasons, it is preferred that all trustees of an SMSF should sign off the fund’s Investment Strategy document. Where there is divergence from unanimous agreement, trustees may want to consider segregating SMSF assets into separate portfolios with appropriate Investment Strategies documented for each of them. Such a departure is likely to involve an increase in SMSF Administration costs, but will ensure all Trustees achieve the investment control they were seeking in establishing the SMSF in the first place.

A skeleton template of an Investment Strategy document is provided as a guide: for assistance to develop a detailed document, refer to the invitation at the end of this article.

Regularly review the SMSF Investment Strategy

Since July 2012 it has been a requirement of the SIS legislation that trustees must review their fund’s investment strategy regularly, with a view to ensuring that it continues to reflect the purpose and circumstances of the fund and all of its members.

This shouldn’t be seen as an onerous duty: most advised investors undertake a regular review of their investment strategy and the performance of their portfolio, at least annually. Annually is also an appropriate time period for the ‘regular review’ of the SMSF Investment Strategy required by the Regulators.

As with investments outside of superannuation, a review doesn’t necessarily result in any change of your strategy, but regular reviews will enable the trustees to stay alert to the investment landscape and any changing circumstances of the Fund’s members – and to make adjustments as required, on a timely basis.

Insurance for members

As noted above, when considering an SMSF investment strategy it is a requirement that trustees consider whether to hold insurance cover for each member of the Fund. An SMSF can generally provide insurance for a member for an event that is consistent with one of these conditions of release of the member’s superannuation benefits: these include –

  • death (including terminal medical condition): Term Life Insurance
  • permanent incapacity (causing the member to permanently cease working): TPD
  • temporary incapacity (causing the member to temporarily cease working): TPD.

 The importance of ‘getting it right’

There are several reasons why trustees of SMSFs need to pay attention to this process. Primary amongst these is ensuring that the fund over which they have accepted responsibility, remains compliant with the requirements of the SIS legislation. An added incentive, is to protect themselves from the consequences of legal action by aggrieved members (including former spouses): these people may be advised to bring an action against the trustees if there has been a perceived failure to adequately address any of the above aspects of the SMSF Investment Strategy requirements. One such instance was discussed in this article published in 2012 where a lack of diversification in the fund’s investment strategy led to the trustees being sued!

An SMSF Investment Strategy video clip from your regulator

As all SMSF trustees will be aware, the ATO is their regulator – and as such, responsibly publishes considerable information to assist trustees and members of SMSFs to ensure that their finds are compliantly managed. One such piece of information is this ATO You Tube clip.

Need help with a financial plan reflecting your SMSF Investment Strategy?

Continuum Financial Planners Pty Ltd has many years of experience in providing advice and guidance to members and trustees of SMSFs – and we are regularly engaged to design and document (and in a number of cases, to implement) Investment Strategies for clients whose superannuation is held in these structures.

To arrange a meeting with one of our experienced and competent advisers to work through your responsibility in this field, call our office (on 07-34213456), or use the Contact Us facility on our website. ‘We listen, we understand; and we have solutions’ – and the first meeting for a prospective new client comes at no charge.

(SMSF Investment Strategy was first published as a Blog post on this website in May 2015: it has occasionally been refreshed/ updated, most recently in April 2021.)